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The World Bank’s Anti-Corruption Charade

Bea Edwards, April 12, 2010

As the World Bank approaches its donor governments for great huge infusions of new cash and loan guarantees this year, many of which have expressed concern about fraud and theft at the global institution, senior management has produced an extravaganza of anti-corruption fanfare. On Friday, April 9th, in Luxembourg, high-level officials and eminent persons at the multilateral development banks (MDBs), including the World Bank, joined hands and skipped gaily downstage to the footlights where they unveiled their joint debarment agreement for applause and ovations. Under the new agreement, if a firm is debarred by one MDB, it’s debarred by all. Unfortunately, experience with the World Bank (as well as with the other banks) shows that high-viz, complex spectacles like this mean little because the political will to enforce them at the Bank itself is lacking.

Three years ago – for example – the World Bank convened a showy panel of experts chaired by Paul Volcker to address the hot mess simmering away in the Bank’s anti-corruption unit, the unfortunately-named Department of Institutional Integrity (INT). The goings-on at INT had, at the time, become so chaotic and vicious that then Bank President Paul Wolfowitz was obliged to ask the Volcker Panel to review INT’s practices. The review would be a tricky task, as a Wolfowitz crony running the show there, Suzanne Rich Folsom, did not take kindly to criticism.

So Volcker and his attendants delivered their conclusions with a series of recommendations and a mild rebuke of INT Director Folsom. In response, the current Bank President, Robert Zoellick, together with his crack management team, convened a working group to follow up. In his wisdom, Zoellick appointed Ms. Folsom and her none-too-popular deputy to the working group charged with implementing the “reforms.” Since that time, the Bank has insistently trumpeted the effectiveness of the Volcker Panel exercise in re-shaping INT into a formidable anti-corruption tool.

HOWEVER, accounts now published by the World Bank’s Administrative Tribunal, the institution’s internal court, show that Folsom did not take the Volcker review lying down. She doctored documents, altered practices and intimidated witnesses. Most importantly, in the backwash from the whole sorry exercise, INT staff members sued the Bank over the vengeance and retaliation Folsom directed at them after she learned they had spoken critically to the panel about her.

The Tribunal, not known for radical decisions, revealed in the text of its rulings (AT decision 419, para. 45) that Folsom was able to retaliate because she had a snitch on the panel. A panel member systematically informed her about which of her staff members spoke to reviewers and what they said. The Tribunal went further and revealed that a lead investigator on the staff at INT knows who the slithery informant was – because Folsom told him. Curiously, Bank management has done nothing to re-examine the Vocker-recommended reforms or identify the person on the panel who subverted then entire effort.

This is not hearsay. Using its rulings, the traditionally conservative Tribunal was telling Bank management that the heavily publicized Volcker review was contaminated. That was roughly five months ago now. But rather than clean up the detritus left by Folsom and the Volcker panel, management has simply trotted out for donors and the press another “anti-corruption” production.

In the anti-corruption world, internal auditors often refer to a fundamental principle they call “the tone at the top.” If, on the one hand, senior management doesn’t tolerate illicit activity, the prohibition tends to seep down through the ranks and effectively eliminate malfeasance. If on the other hand, managers can dance around the rules, everyone else tends to follow their lead. Despite the lively anti-corruption numbers staged at the Bank recently, the Tribunal rulings show that the tone at the top is a real stinker. Before producing yet another anti-fraud gala, management needs to go back to rehearsal on the Volcker panel review.